Mar 09,2007Lenders see big bucks in aging boomer population by Emmet Pierce

The aging of America's baby boom generation was on the minds of lenders who took part in the Mortgage Bankers Association's recent convention on commercial real estate and multifamily housing.

Margaret I. Scott, director of senior housing for lending giant Freddie Mac, recalled one of the catchphrases of the 1960s, "Don't trust anybody over 30." Although they were in their youth at the time, the baby boomers began turning 60 last year.

As they have grown older, the 78 million boomers have left their mark on society, Scott said. "They have changed the way we work ... They have changed the way we look at life in general."

The growing senior population represents an opportunity for commercial lenders, she said. Until recently, senior housing was viewed as a niche market best left to specialists. Today "you have the parents of the boomers, who are in their 80s, and they are among the biggest users of senior housing," Scott said. "This is a market that is skyrocketing."

Curt P. Schaller, director of real estate originations for Merrill Lynch Capital Healthcare Finance, said the senior housing business is changing, even though many lenders have been slow to recognize it.

"A lot of people don't realize how big the senior sector is," he said. "Senior housing is looked at as an ugly stepchild. It is a significant player. Valuations are through the roof. Occupancies are up."

Angela Mago, senior vice president and national manager for KeyBank Real Estate Capita, said there is plenty of capital available for senior housing loans. New types of products are emerging, such as for-sale homes sold in tandem with assisted-living units. "You are going to see multiple levels of care."

Mortgage bankers were urged to do their homework before loaning money for senior housing. James J. Piecznski, co-president for health care and specialty finance at CapitalSource, a commercial finance firm, said his company looks for "good quality operators."

"The most important thing is who you lend to," he said. "This isn't just real estate, it's the provision of care to people."

The senior-housing field is dominated by small firms, he added. "Most of this business is controlled by small owners and regional private chains."

Schaller said there is less risk involved with senior housing than with standard multifamily developments "if you are paired up with a good operator."

The conference at San Diego's Manchester Grand Hyatt attracted an estimated 5,000 lending professionals and vendors. There was broad agreement that 2006 had been a very good year for loan originators. John L. Greisen, a construction lender based in Orange County, said mortgage bankers began 2007 with plenty of money to invest.

"There is so much money out there chasing deals," he said.

Kenneth Gaitan, executive vice president of Johnson Capital Express, agreed. "The market is still flush with capital," he said. Douglas G. Duncan, chief economist of the Mortgage Bankers Association, said much of the industry's money is coming from outside the U.S. "Countries with aging populations are putting money into U.S. securities," he said.

Older households in China are "saving at a very high rate," he said. "That money is coming to the U.S., and it is funding our business."

During the conference, the need for greater racial and cultural diversity among mortgage bankers was stressed. At the Feb. 5 opening session, Jonathan Kempner, president and chief executive officer of the trade group, said diversity among industry leaders makes good business sense. Comparing the business to a football team, he said the industry needs "a deeper bench."

"The more diverse, the better," he said.

During a panel discussion of demographics the following day, Daryl J. Carter, chief executive officer of CharterMac Mortgage Capital, said lenders have not been quick enough to recognize the importance of diversity.

"The train has left the station," he said. "This is not an issue of what we should do. This country is changing very dramatically. As an industry, we have to catch up."